ATC110309: Report Division of Revenue Bill [B4 - 2011 Reprint]

Standing Committee on Appropriations

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE BILL [B4 – 2011 REPRINT] (NATIONAL ASSEMBLY - SECTION 76(1)), DATED 9 MARCH 2011

 

The Standing Committee on Appropriations, having considered the Division of Revenue Bill [B4 - 2011 Reprint] (National Assembly – Section 76(1)), referred to it and classified by the JTM as a section 76(1), reports that it has agreed to the Bill without amendments.

 

1.             INTRODUCTION

Section 12 of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009 (the Act) requires the Minister of Finance to table the Division of Revenue Bill together with the proposed Fiscal Framework and Revenue Proposals for the coming financial year. This is intended to foster transparency and ensure smooth intergovernmental fiscal relations. The Intergovernmental Fiscal Relations Act No. 97 (1997) prescribes the process for determining the equitable sharing and allocation of revenue raised nationally. Sections 9 and 10(4) of the Intergovernmental Fiscal Relations Act No. 97 set out the consultation process to be followed in consultation with the Financial and Fiscal Commission (FFC), including the process of considering recommendations made with regard to the equitable division of nationally raised revenue, hence this is a requirement of the section 214(1)(2) of the Constitution. This Committee report seeks to provide Committee’s perspective on the Division of Revenue Bill (B4-2011-Reprint) and to make further recommendations to the House for consideration.

 

2.         THE ALLOCATIONS OF THE DIVISION OF REVENUE BILL FOR THE 2011/12 FINANCIAL YEAR

In line with job creation as a theme for the 2011/12 financial year, the 2011 State-of-the Nation Address, made by his Excellency President Zuma, announced five priority areas which government needs to focus on. These five priority areas are: jobs creation, enhanced quality of education, improved health and life expectancy, vibrant rural communities and food security, and crime and corruption.  In support of and in financing these five priorities outlined by the State-of-the-Nation Address, the 2011/12 Division of Revenue Bill (DoRB) was tabled in Parliament on 23 February 2011 by the Minister of Finance.   The Constitution sets out specific criteria for the sharing of nationally raised revenue amongst national, provincial and local government. The Division of Revenue Bill classifies schedules from Schedule 1 to 9 in order to divide revenue between 3 spheres and within spheres of government.  Table 1 (below) provides the allocations for three spheres of government.

 

Table 1: Schedule 1 detailing the equitable division of revenue raised nationally among the spheres of government

Sphere of Government	Column A	Column B	Column C
	2011/12	2012/13	2013/14
National Allocations	566 322 576	624 832 817	689 463 889
Provincial Allocations	288 492 831	305 725 449	323 604 408
Local Government Allocations	34 107 901	37 573 396	39 960 288
Total	888 923 308	968 131 662	1 053 028 585

Source: National Treasury (2011)

 

The overall budget has increased in all spheres of government from R818.1 billion in the 2010/11 financial year to R888.9 billion for the 2011/12 financial year. This means that the overall budget for the 2011/12 financial year has increased by R70.7 billion when compared to the 2010/11 financial year. Over the medium term, the budget has increased from R968.1 billion to R1.0 trillion for 2012/13 and 2013/14 financial years, respectively. This shows an increase of R84.0 billion for the medium term expenditure framework (MTEF) which is R9.9 billion higher than the increase of the MTEF of the 2010/11 financial year. Part of this allocation, is an unallocated R4 billion for contingency reserves in the 2011/12 financial year, R11 billion in the 2012/13 financial year and R23 billion in the 2013/14 financial year.  The overall allocation decreases from R888 billion to R808 billion after deducting the unallocated R4 billion and R76 billion for service debt costs.

 

3.         ALLOCATIONS FOR 2011/12 BUDGET TO SUPPORT GOVERNMENT PRIORITIES

In responding to 5 million jobs which need to be created through the implementation of New Growth Path (NGP) in the next ten years, an amount of R94.1 billion is added to the baseline for the following: R48.8 billion is allocated for national government, R40.2 billion for provinces, and R5.1 billion for local government. According to programmes, R10 billion is set aside for job creation and to be spent on the Industrial Policy Plan, small enterprises development, and youth development, and R10.4 billion is set aside for public transport, roads and rail infrastructure. The Committee is of the view that the role of government in the real economy is to create conducive environment for jobs to be created by other role players including the private sector. The Committee is further of the view that government is not the only role player in creating jobs but other social partners also have a role to play.

 

The Committee welcomes additional allocations to support industrial and economic development in order to create more jobs, which includes R600 million for enterprise investment, R750 million for the Competition Commission and other economic regulatory agencies, R250 million for the Industrial Development Corporations (IDC), R120 million for National Tooling Initiative, R282 million for Micro-finance Apex Fund, and R55 million for Khula Enterprises to pilot a new approach to small business lending. Even though the Committee welcomes these allocations, it is concerned about the slow pace in upgrading rural infrastructure and less focus given to the rural roads. In line with the allocation of public transport, the Committee has again raised its concern with regard to the unresolved responsibility of scholar transport which is not clear whether it falls under the Department of Transport or the Department of Basic Education. National Treasury indicated that there are programmes in place for scholar transport, however the onus is on the Department of Basic Education to establish the exact number of children who need scholar transport.

 

An amount of R9.5 billion is added for further education and training to promote skills development. The area of skills development is an important aspect in relation to job creation both in the short and in the long run. Hence once these people are trained, most of them become self employed and create job opportunities for others. Even though the Committee welcomes these additional funds, it is concerned about the R2.8 billion which was added for rural development and emerging farmers.  The Committee is of the view that, since rural development and land reform is one of the five priorities of government, more money needs to be made available considering the high level of under-development in rural areas.  

 

4.         NATIONAL ALLOCATIONS FROM THE NATIONAL REVENUE RAISED

National departments have been allocated a total amount of R566 billion or 63.71 per cent of 2011/12 budget. The overall national allocation has increased by R39.3 billion for the 2011/12 financial year, when compared to the allocation of the 2010/11 financial year. Over the medium term, an amount of R51.1 billion and R57.1 billion was also added for 2012/13 and 2013/14 financial years, respectively.  Even though the Committee welcomes the increase in the national allocation, it is concerned about the non-compliance with the Public Finance Management Act No. 1 of 1999 by some national departments. These levels of non-compliance are normally identified during the in-year monitoring process which is part of the Committee’s oversight activities.  However, the Committee will continue to monitor these areas of non compliance during the oversight process.  

 

5.         PROVINCIAL ALLOCATIONS FROM THE NATIONAL REVENUE RAISED

Provincial departments have been allocated a total amount of R288 billion or 32.45 per cent of the 2011/12 budget (excluding conditional grants).  The provincial allocation has increased by R27.5 billion in the 2011/12 financial year when compared to the allocation in the 2010/11 financial year. An amount of R25.0 billion and R28.8 billion is added for 2012/13 and 2013/14 financial years, respectively. The Committee welcomes the increase in the 2011/12 budget in order to support government priorities, particularly job creation. It is important to note that most provincial departments are still going to receive additional funding through conditional grants from national departments because most policies are implemented at the provincial and local levels.  This will increase the total allocation of provincial departments.

 

For the  Eastern Cape’s Province, the allocation has increased by R3.9 billion from R40.1 billion in the 2010/11 financial year to R44.1 billion in the 2011/12 financial year. For the Free State’s Province, the allocation has increased by R1.56 billion from R15.9 billion in the 2010/11 financial year to R17.5 billon for the 2011/12 financial year. For Gauteng’s Province, the allocation has increased by R5.29 billion from R45.1 billion in the 2010/11 financial year to R50.4 billion for the 2011/12 financial year. For the KwaZulu-Natal’s Province, the allocation has increased by R6.18 billion from R56.7 billion in the 2010/11 financial year to R62.9 billion for the 2011/12 financial year. For Limpopo’s Province, the allocation has increased by R3.1 billion from R33.2 billion in the 2010/11 financial year to R36.3 billion for the 2011/12 financial year. For Mpumalanga’s Province, the allocation has increased by R2.0 billion from R21.3 billion in the 2010/11 financial year to R23.3 billion for the 2011/12 financial year. For the Northern Cape’s Province, the allocation has increased by R641 million from R7.1 billion in the 2010/11 financial year to R7.7 billion for the 2011/12 financial year. For the North West’s Province, the allocation has increased by R1.95 billion from R17.3 billion in the 2010/11 to R19.2 billion for the 2011/12 financial year. For the Western Cape’s Province, the allocation has increased by R2.72 billion from R24.0 billion in the 2010/11 financial year to R26.1 billion for the 2011/12 financial year.   Whilst the Committee welcomes this balanced budget, it still encourages the strengthening of monitoring, evaluation and reporting by provinces during the utilisation of these funds in order to check whether the intended purpose is achieved or not. For example, the creation of jobs needs to be prioritised by all spheres of government and its social partners.         

 

6.         CONDITIONAL GRANT ALLOCATIONS TO PROVINCES FOR SPECIFIC PURPOSES

Given the allocations in the 2011/12 DoRB, it is important to acknowledge that the substantial share of the budget to provinces and local government is in the form of conditional grants. Therefore, the Committee is of the view that these grants have a potential to generate jobs and are instrumental in the job creation programme of government.  The Committee is further of the view that a more coherent and coordinated approach in the management of these conditional grants is required in order to ensure the prudent spending as well as the achievement of the intended objectives. It is important to note that the number of conditional grant schedules has increased from 8 to 9 in the 2011/12 budget. This is due to the addition of a new grant schedule which is not earmarked but will be utilised to provide for the immediate release of funds for disaster response. This is a step in the right direction when considering the recent floods and disasters in various provinces.

 

Even though the Committee welcomes the addition of a new grant, it is concerned about the lack of accountability and transparency in some of the existing grants. This include the non-reporting on conditional grants that fall under schedules 4 and 8 which are not reflected in the reports as per section 32 of Public Finance Management Act (section 32 reports) which are published by National Treasury. The Committee is therefore of the view that the introduction of a new grant should be aligned with an effective reporting mechanism in order to allow effective oversight and accountability.

 

 

 

6.1       Health Infrastructure Grant

An amount of R1.7 billion has been allocated for Health Infrastructure Grant in order to supplement the provincial funding for health infrastructure with a view to accelerate the provision of health facilities and to ensure proper maintenance of provincial health infrastructure. This is a new grant which, in the past, was part of the Infrastructure Grant to provinces. This grant is aimed at enhancing the application of labour intensive methods in order to maximise job creation and skills development, as encapsulated in the Expanded Public Works Programme (EPWP) guidelines and it is envisaged to enhance capacity to deliver infrastructure in the health sector.

 

6.2       Health Professional Training and Development Grant

An amount of R1.9 billion has been allocated for Health Professional Training and Development Grant in order to support provinces to fund service costs associated with training of health professionals, development and recruitment of qualified medical specialists in the under-served provinces in line with the Presidential speech during the 2011 State-of-the-Nation Address. This grant also aims to support and strengthen under- and post-graduate training in health facilities and it has increased by R111.9 million when compared to the 2010/11 financial year.

 

According to the section 32 reports on the third quarter expenditure published by National Treasury, budgets of provincial departments of health in the four provinces are under extreme pressure, namely: Eastern Cape, Gauteng,North West and Western Cape. These spending pressures were mainly due to the over-spending in compensation of employees owing to the implementation of Occupational Specific Dispensation (OSD). The Committee cautions that the high levels of wage bills by the provincial departments of health and education are a cause for concern, since they do not translate into improved quality of service delivery.

 

 

 

6.3       Education Infrastructure Grant

An amount of R5.4 billion has been allocated for Education Infrastructure Grant in order to accelerate construction, maintenance, upgrading and rehabilitation of new and existing infrastructure for the provincial departments of education. This is a new grant which used to form part of the Infrastructure Grant to provinces. The grant is aimed to be more specific and to enhance the application of labour intensive methods in order to maximise job creation and skills development as encapsulated in the EPWP guidelines and that it would enhance capacity to deliver infrastructure in education.   While the Committee welcomes this conditional grant, it is concerned about the high levels of over-spending which were reported by the provincial departments of Education in the Eastern Cape and Limpopo. Their over-spending was reported to be 6 per cent above the provincial average. As at 31 December 2010, personnel expenditure in the Eastern Cape and Limpopo was R1.2 billion and R1 billion, respectively. The Committee is of the view that these spending pressures can create challenges for the delivery of services unless these provinces adjust their personnel spending to an acceptable level. According to the Financial and Fiscal Commission, these spending pressures pose a risk of interrupting service delivery. For example, school nutrition programme and scholar transport were suspended and there was dismissal of temporary teachers in the Eastern Cape.

  

6.4       National School Nutrition Programme grant

An amount of R4.5 billion has been allocated for the National School Nutrition Programme Grant in order to provide nutritious meals to targeted learners. This grant has increased by R915 million from R3.6 billion in the 2010/11 financial year to R4.5 billion for the 2011/12 financial year. This grant is partly aimed to strengthen the effort of government to fight against poverty in the societies at large.  

 

6.5       Schools Infrastructure Backlog Grant

An amount of R700 million has been allocated for the Schools Infrastructure Backlog Grant in order to eradicate inappropriate school infrastructure, and for provision of clean water, sanitation and electricity. This grant is new and intended to deal with the backlogs in schools’ infrastructure (including eradication of mud schools) and in the provision of clean water, sanitation and electricity. It is important to note that this R700 million was not yet allocated to various provinces in the 2011/12 DoRB.  It is therefore not clear whether it forms part of the R2.7 billion which is set aside to eradicate mud schools in all provinces. The Committee is of the view that provinces need to develop comprehensive plans in respect of how they are going to spend the Schools Infrastructure Backlog Grant with clear timeframes since this grant would be terminated in three years.

 

6.6       Expanded Public Works Programme Incentive Grant to Provinces

An amount of R267 million has been allocated for the Expanded Public Works Programme Incentive Grant with a view to incentivise provincial departments to increase job creation efforts in infrastructure, environment and culture programme through the use of labour intensive methods and the expansion of job creation in line with the EPWP guidelines.  However, it is important to note that the allocation of this grant decreased by R63.7 million from R331 million in the 2010/11 financial year to R267 million for the 2011/12 financial year. This is noted with great concern since this programme intends to promote job creation, particularly labour intensive method and full time equivalent jobs.

 

7.         GRANT ALLOCATIONS FOR LOCAL GOVERNMENT

Under schedule 1, an amount of R34.1 billion (excluding conditional grants) is allocated to local government for the 2011/12 financial year, and R37.5 billion and R39.9 billion (excluding conditional grants) for 2012/13 and 2013/14 financial years, respectively. In addition, an amount of R18.8 billion is allocated for Infrastructure Grant in the 2011/12 financial year. The Infrastructure Grant aims to provide specific capital finance for basic municipal infrastructure backlogs for poor households, micro enterprise and social institutions which are servicing poor communities. The Infrastructure Grant comprises of the Municipal Infrastructure Grant, Integrated National Electrification Programme Grant, Electrical Demand side Management Grant, Rural Transport Services and Infrastructure and Municipal Drought Relief Grant.  

 

An amount of R1.2 billion is allocated for recurrent grants which include the Municipal Systems Improvement Grant, Local Government Financial Management Grant and Water Service Operating Subsidy Grant. The aim of these grants is to assist municipalities in building in-house capacity to perform their functions and stabilise institutional and governance systems as required by the Municipal Systems Act and other local government policies. While the Committee notes that a major portion of these grants is allocated for infrastructure, the Committee is mindful of the fact that local government has a responsibility to establish vibrant local economic activities through infrastructure development. The Committee is of the view that the development of infrastructure is the backbone of job creation in the local government.   

 

7.1 Expanded Public Works Programme Incentives Grant to Municipalities

An amount of R679 million has been allocated for EPWP Incentive Grant for municipalities in order to incentivise municipalities to increase job creation efforts in infrastructure, environment and cultural programmes through the use of labour intensive methods and expansion of job creation in line with the EPWP guidelines. It is important to note that, in the 2011/12 budget, this grant has increased by R55.5 million from R622 million in the 2010/11 financial year to R679 million for the 2011/12 financial year. The Committee welcomes the increase of this grant but is concerned about the low intake by municipalities.   

 

7.2 Mass Sports and Recreations Grant

An amount of R451 million has been allocated for the Mass Sport and Recreation Participation Programme Grant in order to facilitate mass participation within communities and schools through selected activities, empowerment of communities and schools in conjunction with relevant stakeholders. It is important to note that in the proposed budget this grant has increased by R25.5 million from R426 million to R451 million[1].   Even though the Committee welcomes this increase in the current allocation it remains concerned about the unclear responsibility of budgeting for school sport facilities between the Departments of Education, Cooperative Governance and Traditional Affairs and Sport and Recreation. The National Treasury indicated that the Municipal Infrastructure Grant (MIG) does include the development of infrastructure component for sports facilities at a local government level. Furthermore, National Treasury also reported that sports facilities was under the P-component of the MIG allocations, i.e. public municipal service infrastructure (new and rehabilitation of existing ones), and that it made up to 15 per cent of the total MIG budget for the 2011/12 period.

 

Furthermore, National Treasury indicated that the issue of the MIG allocations in relation to sports infrastructure has been discussed between the Departments of Sports and Recreation, and Co-operative Governance and Traditional Affairs and that the outcomes emanating from those discussions have been incorporated into the 2011 Division of Revenue Bill with a view of strengthening the monitoring and controls in this regard. While the Committee welcomes the progress made, it was concerned about the slow pace in the process of municipal accreditation which aims to allow municipalities to be able to administer national housing programmes. The National Treasury indicated that even though the accreditation process was the responsibility of the Department of Cooperative Governance, of 283 municipalities about 24 municipalities were already accredited to allow them to administer national housing programmes. 

 

8.         SUBMISSIONS BY FINANCIAL AND FISCAL COMMISSION

In compliance with section 214 (2) of the Constitution, section 9 of the Intergovernmental Governmental Fiscal Relations Act No. 97 of 1997 (IGFR) and section 9 (7) (a) of the Money Bill Amendment Procedures and Related Matters Act 09 of 2009, the Committee is required to consult with the Financial and Fiscal Commission to ensure that all recommendations made by the Commission are being considered before the Division of Revenue Bill is passed.  

 

The Financial and Fiscal Commission (FFC) generally welcomed the 2011 Division of Revenue Bill but the Commission have emphasised the following: protection of soft targets in health and education budgets, improvements in quality of service and efficient management. The FFC expressed a concern with regard to the overspending of health and education in the provincial budgets. The FFC welcomed the decision by government to target directly the infrastructure backlogs and set time frames for the process which was in line with their recommendations made in 2002.  The FFC supported the continued strengthening and increased taxation powers towards municipalities. However, the FFC cautioned against a possible situation whereby municipalities would impose taxes unconstitutionally. The FFC further cautioned against the diversion of resources away from priorities and not leading to better output.

 

9.         COMMITTEE FINDINGS

During deliberations and engagement with relevant stakeholders, the following findings were identified:  

 

• The responsibility of budgeting for the development of sport facilities in schools was not clearly defined between the Departments of Basic Education, Cooperative Governance and Sports and Recreation.

 

• There is an increase in the expenditure for personnel in some provincial Departments of Health and Education without enhancement of the service delivery, particularly in the Eastern and Limpopo provinces. Moreover, the stated 40 per cent of the wage bill in relation to 2010 wage agreements is a cause for concern due to the impact that it will have on the strategic plans of the various Departments over the Medium Term Expenditure Framework (MTEF).

 

• There is a lack of intervention by both Provincial and National Treasury to address poor spending on conditional grants in provinces, in terms of section 17 of the Division of Revenue Bill.

 

• The Expanded Public Works Programme Incentive Grant to provinces has decreased by R63.7 million from R331 million to R267 million as this programme forms part of the job creation initiative.  

 

• The scholar transport policy has not yet been finalised. The administration of the scholar transport programme is a cause for concern in the Eastern Cape.

 

10.        COMMITTEE RECOMMENDATIONS

Having considered the 2011/12 Division of Revenue Bill, the Standing Committee on Appropriations recommends that the House approves the 2011/12 Division of Revenue Bill [B4 – 2011 REPRINT].

 

Based on the above-mentioned findings, the Committee further recommends the following:

 

• That the Departments of Co-operative Governance and Traditional Affairs, Sport and Recreation, and Education should, within three months after the adoption of this report by the House, clarify the responsibility of budgeting for development of sports facilities in schools.   Furthermore, National Treasury should submit a report on schools whose sports facilities would be constructed through the allocation of p-component (15%) in the 2011;

 

• That National Treasury and provincial treasuries in the provinces of the North West, Eastern Cape, Western Cape and Gauteng should come up with measures to address the issue of budgets over expenditure; and

 

• That the Department of Transport and the Department of Basic Education pay urgent attention to the clarification of the responsibility of scholar transport in order for this programme to be fully implemented in all provinces.  

 

 

Report to be considered.

 

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[1] Ibid